The landlord mortgage interest rule

How the rule works

The rule, often called Section 24 after the section of the Finance (No. 2) Act 2015 that brought it in, was phased in from 2017 and has applied in full since April 2020. It covers residential property owned by individuals and partnerships, and it covers all finance costs: mortgage interest, interest on other loans for the property, and the fees for arranging them.

Your rental profit is worked out without taking off any finance costs. You pay tax on that profit at your normal rates, then take off a credit worth 20% of the lowest of:

• your finance costs for the year, plus any unused from earlier years
• your property profits for the year
• your income above the Personal Allowance, not counting savings and dividends.

In most cases the first is the lowest, so the credit is simply 20% of your mortgage interest. Any finance costs you couldn't use are carried forward to the next year.

Worked example

A landlord in England earns a salary of £45,000. The rent is £18,000 a year, with £3,000 of running costs and £9,000 of mortgage interest. The rental profit before interest is £15,000.

The salary already uses most of the basic-rate band, so most of the £15,000 is taxed at 40%. The credit only gives back 20%, so the rule costs this landlord £1,800 a year. The real cash profit after interest is £6,000, and over half of it now goes in tax.

On a £25,000 salary, with the same property, the whole rental profit stays in the basic-rate band and the tax is £1,200 either way. The rule mostly affects higher-rate taxpayers, and anyone it pushes into the higher-rate band.

See this example in the Landlord Tax calculator →

The knock-on effects

Because interest is no longer deducted, your taxable income is higher than your real profit. That bigger figure is the one used for the other income limits:

• it can move you from the basic-rate into the higher-rate band
• it can trigger the High Income Child Benefit Charge, which starts at £60,000
• above £100,000 it starts removing your Personal Allowance.

In the example, the landlord's income for these purposes is £60,000, not £51,000, which puts them right at the point where the Child Benefit charge begins.

Ways landlords respond

Joint ownership. Married couples and civil partners are taxed 50:50 on property they own together, whatever their real shares. If one of you pays tax at a lower rate, you can be taxed on your actual shares instead, but only if you really do own the property unequally and you both send HMRC a Form 17 declaration, which has a strict time limit. Unmarried co-owners are taxed on their actual shares. Changing who owns what can bring Stamp Duty, and Capital Gains Tax for anyone other than a spouse or civil partner.

A limited company. Companies can still deduct interest in full and pay corporation tax on the profit. But moving existing properties into a company usually means Capital Gains Tax and Stamp Duty on the transfer, mortgages for companies tend to cost more, and taking money out brings dividend tax. It suits some portfolios, mostly new purchases, and needs proper advice.

Paying down the mortgage. Each £1 of interest you avoid saves you £1 and only costs you the 20p credit, so you're 80p better off.

Furnished holiday lets used to be exempt, but that special treatment ended in April 2025.

What's changing

From April 2027, property income in England, Wales and Northern Ireland is due to be taxed at 24%, 44% and 49%, and the mortgage interest credit rises to 24% to match. That's 2 points more than was announced a year earlier: the 28 October 2026 Budget added them. It isn't law yet. The gap for higher-rate landlords stays at 20 percentage points. Scotland sets its own rates.

Landlords also have more paperwork. Since April 2026, anyone whose rent and self-employed income together are over £50,000 a year has to keep digital records and send HMRC quarterly updates under Making Tax Digital. The limit falls to £30,000 in April 2027.